Interested in Purchasing a Second Home for Investment?

I am interested in buying a townhome for investment. Basically, buy the home and rent it out. Don't care about making much money from rent, looking for long term investment. Below are my questions:

1. Is there anything I need to know before going to a lender to ask for loan on a home that I will not be my primary residence.
2. Any link to a website or book on how to do a lease contract and how to do a background check.
3. I'm planning on purchasing the home directly from a developer, anything I need to be aware off when dealing with a developer.

Couple of answers and thoughts for you.

1. You will need investor financing if you are looking to buy and immediately rent. Usually this means a slightly higher interest rate and lower loan to value requirements from the lender. Higher reserve requirements too.

2. Your best bet is to hire a management company to manage the property and lease it out. They will not be learning from the ground up like you will be.

If you absolutely want to do it yourself, then get the local tenant handbook from your state and read it carefully.

Also check with the city regarding any local ordinances that you need to be aware of.

Join the local landlord organization or one such as Apartment Owners Association so you get can lease and other legal forms and low/no cost legal advice with your membership. They will usually have a vehicle to run credit and background checks available to members. Memberships typically run $100-150 per year. Money well-spent.

3. Find out if they will be restricting rentals in the development or if there is an owner occupancy/hold period requirement.

Upgrade before completion anything it would be difficult to upgrade after completion (cabinets/countertops, electrical, data wiring, etc.).

Get an extended warranty if you can.

Find out what their preferred lender would charge, points, fees, interest rate, etc. and compare that with your local bank's rates or with a mortgage lender. Sometimes developer financing is not as good as going outside.

4. Make sure you have a realistic idea of how much you will be able to rent it for and how long it will take to rent it. Budget 3 months on your initial vacancy.

Don't skimp on your advertising.

Get a good security deposit.

Make sure to check landlord/rental references. Go back two people. The current LL may just want to get rid of them.

Be aware of HOA fees. These can often increase up to 20% per year without a vote of the association (if a condo); every year. Check your CC&R's

Consult your tax advisor about the impact a rental property will have on your tax liability.

Remember that every time you refinance it will cost you money or equity. Best investor loan rates are at CLTV's at 70% or less.

Good luck and have fun!